1 / 21

Operations Management Capacity Design

Operations Management Capacity Design. Long Range Planning. Add Facilities. Intermediate Range Planning. Sub-Contract Add Equipment Add Shifts. Add Personnel Build or Use Inventory. Schedule Jobs Schedule Personnel Allocate Machinery. Short Range Planning.

norton
Download Presentation

Operations Management Capacity Design

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Operations ManagementCapacity Design

  2. Long Range Planning Add Facilities Intermediate Range Planning Sub-Contract Add Equipment Add Shifts Add Personnel Build or Use Inventory Schedule Jobs Schedule Personnel Allocate Machinery Short Range Planning Modify Capacity Use Capacity Types of Planning Over a Time Horizon

  3. Definition and Measures of Capacity Design Capacity: The maximum “throughput,” or number of units a facility can produce in a period of time. Capacity a firm can expect to achieve given its product mix, methods of scheduling, maintenance, and standards of quality. Effective capacity: Utilization: Actual output as a percent of design capacity. Efficiency: Actual output as a percent of effective capacity.

  4. Utilization Measure of planned or actual capacity usage of a facility, work center, or machine Actual Output = Utilization Design Capacity

  5. Efficiency Measure of how well a facility or machine is performing when used Actual output = Efficiency Effective Capacity

  6. Example Facility produces breakfast rolls • Last week, produced 148,000 rolls • Effective capacity is 175,000 rolls • Line operates 7 days a week with three 8-hour shifts per day • Line designed to produce 1200 rolls per hour • Determine • Design Capacity • Utilization • Efficiency

  7. Calculating actual output Same facility adding one more line due to increase in demand for deluxe rolls • Effective capacity is 175,000 rolls of this line • Efficiency of this second line will be 75% • What is the expected output?

  8. Managing Demand • Demand exceeds capacity – curtail demand by raising prices, scheduling long lead times, etc • Capacity exceeds demand – stimulate demand through price reductions, aggressive marketing, etc • Adjusting to seasonal demands– offer products with complementary demand patterns – pdts for which demand is high for one when low for the other

  9. Managing Capacity • Making staffing changes (increasing or decreasing the number of employees) • Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment • Improving methods to increase throughput; and/or • Redesigning the product to facilitate more throughput

  10. Breakeven Analysis • Technique for evaluating process & equipment alternatives • Objective: Find the point ($ or units) at which total cost equals total revenue • Assumptions • Revenue & costs are related linearly to volume • All information is known with certainty

  11. Break-Even Analysis • Fixed costs: costs that continue even if no units are produced: depreciation, taxes, debt, mortgage payments, salaries, etc • Variable costs: costs that vary with the volume of units produced: labor wages, materials, portion of utilities

  12. Breakeven Chart Total revenue line Profit Breakeven point Total cost = Total revenue Profit Total cost line Cost in Dollars Variable cost Loss Fixed cost Volume (units/period)

  13. Process A: low volume, high variety Process B: Repetitive Process C: High volume, low variety Total cost - Process A Total cost - Process B Total cost - Process C Fixed cost - Process C Fixed cost - Process B Fixed cost - Process A Lowest cost process Process A Process B Process C Crossover Chart

  14. Break Even Contd.. • BEPx= FC (units) P-V BEPrs.= FC (amount) 1-(V/P) BEPrs.= FC (multi product) ∑[(1-Vi/Pi)*(Wi)] P=Selling price, V=variable cost FC=fixed cost

  15. BEP Calc. • A company has fixed costs of 10000/- this period. Direct costs are 1.5/- per unit and material cost is 0.75/- per unit. The selling price is 4/- per unit. Calculate the BEPs.

  16. BEP Calc. in multi product case

  17. If the fixed costs are 3500, • BEPrs.= FC ∑[(1-Vi/Pi)*(Wi)] 3500*12 = 67200 0.625

  18. Decision trees application • A company is considering capacity expansion. it has 3 alternatives. the new facility would produce new type of product and currently the marketability of the product is unknown. • Types of plant favorable mkt. unfavorable mkt. • Large plant 100 k -90k • Medium plant 60k -10k • Small plant 40k -5k • The probability of fav and unfav. Markets are 0.4 and 0.6 respectively.

  19. EMV (large plant)=0.4(100k)+(.6)(-90k)=-14k • EMV (medium plant)=0.4(60k)+(.6)(-10k)=18k • EMV (small plant)=0.4(40k)+(.6)(-5k)=13k • Based on Expected market value, the company should build a medium plant

  20. Net Present value • A co. having two capacity expansion alternatives A and B have useful lives of 4 years. Initial outlay for A is 25k and that for B is 26k. The cost of capital is 8%.the cash flow pattern is as follows. year A B 1 10k 9k 2 9k 9k 3 8k 9k 4 7k 9k

More Related